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Waters Introduces Legislation to Improve SEC Process for Holding Bad Actors Accountable

Washington, DC, July 27, 2017
Tags: SEC

Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the Committee on Financial Services, introduced the Bad Actor Disqualification Act of 2017, important legislation that ensures the Securities and Exchange Commission (SEC) protects investors from bad actors by implementing a rigorous, fair, and public process for waiving automatic disqualification provisions in the law.

“By waiving the consequences for bad actors the SEC is sending the wrong message,” said Ranking Member Waters. “The SEC should not automatically give those who break the law a free pass by allowing them to continue to conduct business as usual. This commonsense legislation will subject waiver requests to public scrutiny and robust SEC review so that the law protects investors, the markets, and the public. No one is above the law, including large financial firms.”

Certain provisions in securities laws allow law-abiding companies to engage in activities with less oversight, fewer disclosure requirements, and limited liability. However, companies that have been convicted of certain felonies and misdemeanors or are determined to have violated anti-fraud provisions of securities laws are automatically disqualified from such benefits, unless they obtain a waiver from the Commission. In recent years, the SEC has granted these waivers on a seemingly automatic basis and has done so disproportionately for large financial firms.

The Bad Actor Disqualification Act of 2017 will prevent the SEC from automatically waiving disqualification by:

  • Requiring the waiver process to be conducted and voted on at the Commission level, rather than at the staff level;

  • Requiring the Commission to consider whether granting a waiver would be in the public interest, protect investors, and promote market integrity;

  • Requiring the Commission to publish notice and afford the public an opportunity to comment and present their views at a public hearing on whether a particular waiver should be granted or denied; and

  • Requiring SEC staff to keep complete, public records of all waiver requests (formal and informal) and create a public database of all disqualified bad actors.

Ranking Member Waters has long called for fairness and transparency in the waiver process for Wall Street bad actors. In March 2015, in light of a December 2014 study that found that the SEC disproportionately granted 82% of waivers to large financial firms during the preceding eleven years, Ranking Member Waters unveiled draft legislation to reform the SEC’s waiver process. In May 2015, Ranking Member Waters sent a letter to the SEC following reports that five of the largest banks intended to plead guilty to criminal antitrust violations and pay several billion dollars for rigging foreign currencies. Then in June 2015 and December 2016, Ranking Member Waters and other Democratic lawmakers called on the Department of Labor to hold public hearings on any waivers requested by banks with a history of misconduct.

Click here to view the bill text and summary.


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